Well Known Investors Extoll the Virtues of Blue Chips

Several well regarded money managers including Jeremy Grantham, Whitney Tilson, Robert Olstein, and Bill Miller believe there’s good value in the large cap blue chip stocks.

Tilson of T2 Partners says Microsoft Corp. is a steal. Its stock has lost 4 percent in the past year, while the rest of market has risen. Yet the company has little debt, $37 billion in cash and dominates the operating system and software businesses, giving it pricing power competitors don’t have. Translation: Customers won’t flee if it has to raise prices in an inflationary environment or decide not to cut them as wages fall along with everything else in a deflationary one.

The kicker: You can follow in Tilson’s footsteps and buy Microsoft’s stock for 11.35 times the last reported annual earnings, or less than 10 times if you subtract cash from the stock price. Tilson says that’s nearly the lowest ever. The stock closed Friday at $23.85, near its 52-week low.

“In this market, the pickings for a value investor are easy,” he says.

His fund’s biggest holdings are household names that are generating significant amounts of cash, yet selling at prices he finds very reasonable. They include Intel, Microsoft, Macy’s, Xerox, DuPont, Radio Shack, Alliance Bernstein, Home Depot, Legg Mason and Ingersoll Rand. Their abundant cash flows should enable them to make moves like share buybacks, increased dividend payouts, mergers and acquisitions, which, he said, should serve as a catalyst to raise prices.

Disclaimer: It is very difficult to outperform a buy and hold strategy. Many investors have found themselves best served over long time horizons by investing regularly in a diversified portfolio of stocks or low cost, broadly diversified indexed stock funds. Information presented is based on analysis of past data and assessments by the Tactical Timing System model. Future performance may not reflect past performance. Profitable trades are not guaranteed. No system or methodology ensures stock market profits. Although accuracy is strived for, no guarantee is made regarding the accuracy of data presented. Nothing presented here should be considered investment advice, but merely the humble opinion of the author.